WEYCO Group Inc (WEYS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Weyco Group earnings conference call. My name is Pam, and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. John Wittkowske, Senior Vice President and CFO. Please proceed, sir.

Thank you. Good morning, everyone, and welcome to Weyco Group's conference call to discuss our first-quarter 2012 earnings.

On this call with me today are Tom Florsheim, Jr., our Chairman and CEO, and John Florsheim, our President and COO. Before we begin to discuss the results, I will read a brief disclaimer.

During the course of this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the Company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially. We refer you to Weyco Group's most recent Form 10-K as filed with the Securities and Exchange Commission. The 10-K identifies important factors and risks that could cause the Company's actual results to differ materially from our projections. Additionally some comparisons may refer to non-GAAP measures. Our SEC filings may contain additional information about these non-GAAP measures and why we use them.

Our net sales for the first quarter of 2012 were $75 million, up 16% from $65 million in 2011. Operating earnings were $5.8 million versus $4.8 million in 2011. Net earnings were $3.9 million as compared with $3.4 million. Diluted earnings per share were $0.35 per share in 2012, up from $0.30 in 2011.

North American wholesale sales of footwear for the first quarter of 2012 were $56 million compared with $48 million in 2011. The quarter -- the first-quarter 2012 results included BOGS sales for the entire quarter, while 2011 only included BOGS sales from March 2, the date of acquisition, through March 31. BOGS sales were $5.8 million in the first-quarter compared with $2.2 million last year.

Collectively sales of all our other wholesale brands were up 11% for the quarter. Licensing revenues were $725,000 in the first quarter, up from $596,000.

Operating earnings for the wholesale segment were $4.5 million this quarter compared to $3.6 million in the first quarter last year. Gross earnings as a percent of sales were 30.5% in 2012 as compared with 30.9% in 2011. Selling and administrative expenses were $12.8 million or 23% of sales as compared to $11.3 million or 24% of sales last year. The majority of the increase in operating earnings was the result of the higher sales volumes.

Net sales in our North American retail segment, which include both our retail stores and Internet, were $5.7 million in the first quarter compared to $5.6 million in 2011, an increase of 1%. Same-store sales were up 14% for the quarter. There were seven fewer retail stores at the end of the first quarter of 2012 than there were at the same time last year. Sales increases across many of our retail stores and from our Internet business have more than offset the volume loss from the closed stores.

Retail operating earnings improved for the quarter due to higher same-store sales, slightly higher gross margins and the closure of underperforming stores.

Our other operations, which include the wholesale and retail businesses of Florsheim Australia and Florsheim Europe, had net sales of $13 million in the first quarter of 2012 versus $11.4 million in 2011. The majority of other net sales are generated by Florsheim Australia. Florsheim Australia's net sales were up 17%. In local currency, sales were up 12% with the remaining increase caused by the strengthening of the Australian dollar relative to the US dollar.

Florsheim Europe sales were up 6%. Operating earnings of our other businesses were $1.4 million this year compared with $1.2 million last year.

Our cash and marketable securities were $62 million at March 31 this year. We generated $335,000 of cash from operations, borrowed $2 million under our line of credit, paid dividends of $1.7 million and had $891,000 of capital expenditures for the quarter.

This past December we purchased a new building adjacent to our current distribution center. In the second quarter, we will begin construction to connect the new building to our current facility. This will provide us with additional space for BOGS product and allow us to accommodate future growth while maintaining the efficiency of our operations. Including this project, we estimate that 2012 capital expenditures will be between $6 million and $8 million.

On April 27, 2012, the Company's Board of Directors declared a quarterly cash dividend of $0.17 per share to all shareholders of record on June 1 payable July 2. This represents an increase of 6% above the previous quarterly dividend of $0.16.

I will now turn the call over to Tom Florsheim, Jr.

Thanks, John, and good morning, everyone. We are very pleased with our first-quarter performance as we enjoyed strong wholesale growth across a majority of our divisions.

Sales of our Stacy Adams and Nunn Bush brands increased 17% and 13% respectively as both divisions experienced strong increases in the department store and shoe chain trade channels. Shipments of Nunn Bush and Stacy Adams were positively affected by the rollout of new programs with several of our major accounts. Both brands are also currently experiencing strong sell-throughs at retail.

Sales of our Florsheim brand were down 2% as shipments were impacted by delayed deliveries from one of our major Florsheim factories. While Florsheim shipments decreased slightly, we are encouraged by the brand's performance at retail as we have delivered several new casual packages for Florsheim this spring that have been well received by consumers.

Regarding BOGS and Rafters, the increase in sales reflects a full quarter of shipments versus sales for only the month of March last year. In terms of performance, the mild weather across the country in the first quarter impacted BOGS' boot sales and reduced anticipated fill-ins during the months of January and February.

On June 1, 2012, we will begin taking over the distribution of BOGS in Canada. Previously sales of BOGS in Canada have been made by a third-party licensee. We believe the additional business could add $6 million to $8 million in sales in 2012 and $8 million to $10 million in 2013, although there can be no assurances. In addition, our Australian subsidiary is in the process of introducing BOGS in Australia and New Zealand.

Umi sales were up 29% for the quarter, driven by strong growth with department stores, as well as an increase in international sales.

In summary, we feel our overall wholesale business is off to a good start this year. We also believe that with the addition of BOGS and Rafters, as well as the new casual product initiatives within our existing brands, we are making good progress in diversifying our product mix to match today's consumers more relaxed lifestyle.

In our North American retail segment to date in 2012, we have closed three of our retail locations, and we expect to close three more stores before the end of the year, leaving us with 24 Florsheim stores and outlets in the US at the end of 2012.

We do see retail as a key part of our branding strategy and are just beginning the construction phase of a major remodel of our flagship store on Madison Avenue in New York City. We will continue to evaluate the profitability of our stores and the retail landscape on an ongoing basis.

Overseas our retail performance remains solid with same-store sales of 8% in Australia and 3% in Asia. In Australia retail sales growth was driven in part by an increase in our Australian e-commerce business as that trade channel continues to grow in importance in the Australian market.

At the end of March, we also opened up a new Florsheim store in the [Pacific Fair] mall located South of Brisbane.

We are also pleased with the growth in our international wholesale business as we experience solid year-over-year growth in both Australia and Europe for the first quarter.

Similar to other companies in our industry, we face -- we continue to face pricing pressure out of China and India based on increased labor and material costs. Product costs out of China are also increasing due to the strengthening of the Chinese currency relative to the US dollar. We have raised our stock prices in an effort to maintain our margins, but we believe we will continue to experience increasing costs on the supply side for the near and medium term.

That concludes our formal remarks. We appreciate your interest in Weyco, and I would now like to open up the call to any questions.

(Operator Instructions). Rebecca Simmons, DePrince, Race & Zollo.

Good morning and congratulations on a good quarter. I just want to know if you can give some color on leather prices and Chinese labor costs and how that is impacting your gross margins?

Sure. The leather market has stabilized somewhat this year. I think we talked about on the last call that we actually had a couple of tanneries where we had decreases in prices. But for the most part, we are just seeing a more stable market, and in some cases we still have tanneries that are increasing prices. It is really all over the place. But I would say that the general theme in the leather market is more stability than we saw a year ago. So I would just say it is more stable.

As far as the -- what was the second part of your question about -- the Chinese labor prices? That continues to increase, and I cannot give you the exact percentages, but there has been an increase this year. The belief is that the Chinese government is going to continue to increase the minimum wage and other benefits that the Chinese laborers receive. So the cost of labor is going to just keep going up. And so that is something that anybody that is sourcing products in China is going to have to deal with.

Going forward, do you think you will be able to offset these prices or these costs through pricing, or do you think that you will continue to see pressure?

I think that we will be able to offset part of it. I think that it is a good thing that a lot of the price pressure from leather and also from some of the other components has settled down a bit. Some of that is due to the whole supply and demand. I think that the world has slowed down a bit.

When you look at what Europe is buying from China today -- and I'm speaking specifically about the shoe industry -- that the factories are not as busy as they were a year ago. So they are being easier to deal with from a pricing standpoint, and that is helping us right now.

I think that we are trying to move our price points up. Our brands are mostly middle-market brands, and at some point you do hit the wall as far as the price increases that you can achieve. And so I think that so far we have been pretty much able to offset the cost increases that we have received, and I think that we are going to be able to continue to do that.

I guess it is a little -- I don't mean to be a little ambiguous in my answer, but I think it's a little bit of an unknown. Right now we are managing okay, and I guess we will just have to see how it goes. I think that if demand picks up a lot and the price increases pick up a lot, it becomes more challenging. But right now we are managing it in, I think, in a way where we will pretty be able to maintain our margins.

Okay. Great. Can you talk about your expectations for your core brands for the rest of 2012?

Well, we don't give specific guidance in terms of our overall -- in terms of our overall wholesale sales, as well as specific brands. But we feel that we are off to a good start. We are relatively well positioned. We are making good progress in terms of increasing the casual penetration of our existing brands, specifically Florsheim, where we are very encouraged by some new product that we have out in the market. It has been something we have been working towards is evolving that brand and making it less of a dress shoe brand and more reflective of how consumers are dressing today. So we are making good progress towards that end.

So I mean I think overall we are encouraged by the good start in our wholesale business. We are in a bit of an -- we are in somewhat of an unpredictable industry. But we have good relationships, and we feel that we are well positioned in terms of the initiatives that we have out there.

Okay. Great. And then can you talk about if BOGS is continuing to meet your expectations and maybe any initiatives going forward with that?

Yes, I mean I think the soft -- the mild -- first of all, we are actually very pleased with the BOGS business and the integration of BOGS into Weyco Group and working with the Combs family has been working out very well. They really have done a terrific job in terms of from a product design standpoint, as well as from a marketing standpoint of that brand.

The mild winter impacted all boot companies, especially boot companies that were somewhat weather-dependent. And that -- and so our fourth quarter and then early fourth quarter were not as strong as we initially anticipated. We had -- one figure I have heard is that there is 80% less snow this past winter than the previous winter. So I mean that -- that is definitely going to affect the market.

Looking forward, that tends to also impact the next season as retailers are more conservative in terms of how they plan their fall buys.

So we are seeing a little bit out there, but we also feel that we have a number of good things going with BOGS just in terms of the overall level of consumer support for the brand, plus the addition of the Canadian distribution on June 1. BOGS is in a very, very strong position in the Canadian market. We are taking that over. We are going to be shipping out of our Montreal warehouse directly to retailers, and that will be a nice boost to the business as well.

(Operator Instructions). And there are no further questions at this time.

Okay. Then we will thank everybody for joining us on the call today, and we will talk to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.